2degrees fights to block 4G sale to Vodafone, Telecom

The Commerce Commission has been urged not to sign off on the country's dominant mobile phone operators buying the remaining 700 megahertz radio spectrum for fear of undermining burgeoning competition in the market.

A Covec report, commissioned by new entrant Two Degrees Mobile, claims competition among mobile carriers would be "substantially enhanced" if the antitrust regulator declines clearance for Vodafone New Zealand and Telecom Corp to buy the unsold pair of 5MHz spectrum blocks. The spectrum became available when the government decided to switch-off analogue television services, freeing up the radio waves for use on 4G mobile networks.

If the dominant mobile carriers are cleared to buy the spectrum, the Covec report warns 2degrees will face higher capital costs of the long-run, reducing its incentive to compete aggressively for retail and wholesale customers, particularly for those clients generating high data volumes.

"The retail market concern is the most pronounced in the on-account market segments, which have not yet been fully disrupted, where data traffic is relatively more important, and where 700 MHz spectrum is therefore of greater value," the report said.

Approval would also crowd out 2degrees' ability to offer the same quality of service as Vodafone and Telecom, and hinder incentives for effective spectrum-sharing and national roaming services.

"Each of these is a serious issue in a market, and a group of affected markets is jointly important for mobile sector competition," the report said. "Collectively, they seem likely to pose a material risk to the intensity of competition, especially since the sector is currently transitioning out of a duopoly structure, but we do not yet have three similar-strength networks."

The submission, published on the regulator's website, comes ahead of the Dec. 6 due date for the commission's decision, and as Vodafone and Telecom bid for the remaining blocks at auction. In the first round of the auction last month, Telecom and Vodafone each bought three blocks each (2x15 MHz) and 2degrees two blocks (2x10MHz).

The Covec report said the opportunity cost of leaving the unsold spectrum unallocated is very low as it won't be needed in the foreseeable future. That means declining clearance now doesn't extinguish the prospect of allocating the spectrum to Vodafone or Telecom at a later date.